Correlation Between Energy and Allegion PLC

Can any of the company-specific risk be diversified away by investing in both Energy and Allegion PLC at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Energy and Allegion PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Energy and Environmental and Allegion PLC, you can compare the effects of market volatilities on Energy and Allegion PLC and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Energy with a short position of Allegion PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy and Allegion PLC.

Diversification Opportunities for Energy and Allegion PLC

0.38

Correlation Coefficient

Energy  Allegion PLC

Weak diversification

The 3 months correlation between Energy and Allegion is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Energy and Environmental and Allegion PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegion PLC and Energy is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Energy and Environmental are associated (or correlated) with Allegion PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegion PLC has no effect on the direction of Energy i.e., Energy and Allegion PLC go up and down completely randomly.

Pair Corralation between Energy and Allegion PLC

Given the investment horizon of 90 days Energy and Environmental is expected to generate 3.18 times more return on investment than Allegion PLC. However, Energy is 3.18 times more volatile than Allegion PLC. It trades about 0.0 of its potential returns per unit of risk. Allegion PLC is currently generating about -0.03 per unit of risk. If you would invest  7.00  in Energy and Environmental on December 22, 2024 and sell it today you would lose (0.49) from holding Energy and Environmental or give up 7.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Energy and Environmental  vs.  Allegion PLC

Energy and Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy and Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Allegion PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allegion PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Allegion PLC is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Energy and Allegion PLC

The main advantage of trading using opposite Energy and Allegion PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy position performs unexpectedly, Allegion PLC can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Allegion PLC will offset losses from the drop in Allegion PLC's long position.

The idea behind Energy and Environmental and Allegion PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.